Advising someone to buy life insurance can be considered unethical… here’s why

George took a long breath and embarrassingly asked, “Should I be losing 51% of my monthly contribution to my 401k plan to fees”?  Obviously, George was ashamed of not knowing the answer, but a bit shy about asking lest he appear foolish.

Typical Financial Planning has a way of making you feel foolish, embarrassed to ask what and why, and vulnerable due to the terminology and language used. But never forget that it’s your money!  You should never be made to feel foolish, embarrassed or even vulnerable if your financial planner is following the guidelines of FINRA (Financial Industry Regulatory Authority) and the SEC (US Securities and Exchange Commission.)

At the same time, realize that FINRA and the SEC never certify any financial planner, advisor, investment representative or broker. They can recommend fines, legal actions or suspend licenses but it is up to you to do your own due diligence to make sure you are not being taken advantage of.

So, when George asked his question, it was telling.  He hadn’t been informed how much the fees he was paying to his financial planner were costing him. If he was contributing $1,000 a month and earning an annual Net Asset Value Return of 4%, the 51% he was losing each month was not even allowing him to keep what he was contributing.

  • $1,000 per month
  • Earning 4% NAV
  • Over 1 year = $12,263.20

But that fee of $510 every month left him only $490 to earn a 4% NAV. That left George with only $6,008.97, with $6,254.23 lost because of fees. As George was contributing $12,000 annually, that means he was losing more than 36% of the money he was contributing and NOT earning anything.

Financial Planners, advisors, investment representatives and brokers are not required to make sure you make money. In fact, there is no law requiring them to sell you the least expensive product or recommend the most profitable investment.  What they are required to do is to place you in the highest risk category that they can justify, so that you have the greatest potential of earning the highest returns. This is done under the guise of being called fiduciaries.

As a fiduciary, the planner, advisor, investment rep or broker is to place your money in investments and products that match your risk.  But your risk is defined, not by how much money you might lose but, by how much money you might be able to earn.  So if you are 65 and will be retiring in 2 years but don’t have enough money, then it is the fiduciaries duty to put your money in higher risk investments in hopes you might be able to make enough money to retire in 2 years.

Interestingly, advising this same 65 year old to protect the money currently saved by using a legally binding life insurance contract or annuity could be considered unethical as this 65 year old doesn’t have enough money to retire on yet. But there is never any guarantee that this 65-year-old won’t end up in the place which George found himself: losing 51% of his contributions to fees, if he moves into higher risk products and investments.

Thus George, and people like him, are stuck in a quandary.  Should they assume greater risk to potentially receive a higher return, or should they opt for a product with a guarantee that they won’t lose any of their money, like a participating whole life insurance or a guaranteed annuity?

At Life Benefits we don’t tell you what to do with your money, we merely educate you on the consequences of what you can do with your money.  Not surprisingly, most people know what to do with their own money once they know all the options, and many go on to purchase the life insurance and annuity products that we design and sell.

Like George, people aren’t stupid and they don’t need to be made to feel stupid by someone who is making more money off their money than they are. Once George knew what his options were, he made the right decision about what to do with his money. Those who aren’t motivated by greed or fear usually do make the right choices about their money and investments.

Education eliminates the need to make decisions based on greed and fear.  It also eliminates ever having to feel embarrassed, foolish or vulnerable to any financial planner, advisor, investment representative or broker.  If you feel foolish, embarrassed or vulnerable with you money, you probably just need some knowledge or perspective and you can  schedule an appointment here to get that.

Dr. Tomas McFie Dr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. I help people beat the system with a financial formula that minimizes taxes, reduces fees and cuts losses so they can keep more of the money they make, grow their wealth and never run out of money.

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